Weak US retail sales point to slowing growth

US retail sales fell for a second straight month in May and wholesale prices dropped by the most in three years, raising prospects of additional monetary policy easing from the Federal Reserve to spur economic growth. The reports yesterday added to a raft of other data, including employment and manufacturing, pointing to a downshift in the economic recovery. Consumer spending had been one of the key pillars of support for the economy in the first quarter, and the sales data led a number of economists to cut forecasts for second-quarter growth. Analysts said the darkening outlook opened the door a bit wider to the possibility of a third round of so-called quantitative easing at a Fed meeting next week. “We still believe the Fed would prefer to wait a bit longer on QE3 to see how the domestic and global situations play out, but the weak data certainly strengthen the argument for action,” said Michelle Girard, senior economist at RBS in Stamford, Connecticut. Retail sales slipped 0.2% as demand for building materials sagged and declining gasoline prices weighed on receipts at service stations, a Commerce Department report showed. April’s sales were revised to show a 0.2% drop instead of the previously reported 0.1% gain. Motor vehicle sales rose 0.8%, a surprise given that manufacturers reported weak unit sales during the month. Excluding autos, sales fell 0.4%, the biggest decline in two years, after dropping 0.3% the prior month. Separately, the Labour Department said its producer price index dropped 1.0% last month as energy costs slumped 4.3%. Tame inflation pressures should provide the Fed with some scope to aid the sputtering recovery. The US central bank meets on Tuesday and Wednesday of next week. A Reuters poll of economists last week put just over a 40% chance of the Fed extending its “Operation Twist” programme aimed at pushing long-term interest rates lower. “Inevitably, the easing inflation pressures will provide considerable room for monetary accommodation by the Fed, and if this disinflationary trend becomes entrenched, it may actually provide some justification for aggressive monetary policy action,” said Millan Mulraine, senior macro strategist at TD Securities in New York. While weak receipts at suppliers of building materials and service stations accounted for the bulk of the fall in sales last month, details of the report were mixed and added to signs of cooling demand. Job growth has slowed in the past three months, with employers adding the fewest jobs in a year in May. A combination of the worsening debt crisis in Europe and a looming so-called fiscal cliff at home are creating uncertainty that is souring both business and consumer confidence. Retail sales last month were dragged down by a 2.2% drop in sales at gasoline stations after a decline of 1.4% in April. Gasoline prices dropped 17¢ last month to $3.79 a gallon. Excluding gasoline, retail sales nudged up 0.1% after easing 0.1% in April.